George Osborne may be the most disastrous Chancellor of the Exchequer of modern times, but he offers a masterclass in how to win an argument you have lost.

It was he, not his critics, who argued that maintaining Britain’s credit rating was a key – if not the key – justification for austerity. It was he who argued that a triple-A rating demonstrated that “the world has confidence” in his policies. It was he who stood on a manifesto that pledged: “We will safeguard Britain’s credit rating with a credible plan to eliminate the bulk of the structural deficit over a Parliament.” It was he who once suggested that an election should be called when Standard & Poor’s put Britain on negative watch under Gordon Brown’s benighted premiership.

Perverse

How perverse, then, that he has attempted to spin Moody’s slashing of Britain’s rating to his own advantage. Here was a “stark reminder” of the need for the Tories to deal with Britain’s “debt problem”, in contrast to Labour’s crippling addiction to borrowing.

Humiliation has somehow become vindication. It has been the strategy of the right ever since bankers fled Lehman Brothers carrying boxes of their possessions: a crisis of the market, of neo-liberal dogma, was re-spun into the sort of assault on the state that swivel-eyed Thatcherites never dared to imagine was otherwise possible.

The opponents of austerity never put their faith in the discredited, disreputable credit rating goons. It was these unaccountable ideologues masquerading as experts who gave the likes of AIG and Lehman Brothers a clean bill of health on the eve of their implosion – making a fair buck in consultancy fees in the process, of course.

They bully elected governments into economic masochism and then, when the consequences are predictably catastrophic, slash their credit ratings. “Fiscal self-austerity alone risks being self-defeating, as domestic demand falls... eroding national revenues,” was Standard & Poor’s glib assessment after downgrading the credit ratings of nine EU countries a year ago. You don’t say.

But that’s not the point. Misery is being inflicted on millions of people, and the Government justifies this hardship with a series of key tests. If even on their own terms Tory slash-and-burn policies are failing, then there is no rationale for austerity. The underlying deficit is growing. Debt is heading north. The Institute for Fiscal Studies predicts that UK borrowing will exceed Government targets by nearly £7bn this year, and £128bn will be added to the national debt – beating last year’s abysmal record. Growth has been stifled, strangled and suffocated.

Even if we avoid an unprecedented triple-dip recession – and it ain’t looking good – we remain in a crisis more protracted than the Great Depression. And now Britain has had its triple-A rating scrubbed away. How can Osborne even emerge in public after all this, let alone remain the occupant of No 11?

And yet the Tories’ trump card is to call Labour’s bluff. You screech from the sidelines, Mssrs Miliband and Balls, but where is your ready-made alternative? Two years from an election which must be a referendum on the catastrophe of austerity, here lies an approaching danger.

Labour is likely to win, probably with a majority government. But they may say this as they waltz into No 10: we opposed brutal cuts which have extinguished growth and failed to reduce the deficit or the debt. We are where we are, though, and to sort out the mess the Tories have left us, we will have to implement some unpopular cuts of our own. The Tories’ current argument will be flipped. Outriders will applaud policies that – if introduced by a Tory government – they would froth about.

It is a scenario that Tim Montgomerie, one of the brightest right-wing commentators and editor of ConservativeHome, foresaw a few weeks ago. He wrote a piece set in 2018, looking back. “Labour soon became a very unpopular government,” he wrote. “Like François Hollande in 2012, Ed Miliband had campaigned for office on an anti-austerity message but had to U-turn once in office.”

Hilariously, he suggested I would lead the left-wing “Green and Justice Party” which would benefit from Labour’s collapse: if I was to lose my mind and set up some new party, it would certainly have a catchier name than that. But it touched on a fate that has befallen Labour’s European sister parties.

In Greece, PASOK unleashed self-defeating austerity; it now languishes on single-figures in the opinion polls. In Spain, the Socialists were booted out in 2011 not because their right-wing opponents won more votes (they barely did), but because their own supporters sat on their hands.

Another way

And yet Labour do have the outlines of an alternative. When Ed Balls stood for the Labour leadership, he launched a now-vindicated attack on austerity. His Bloomberg speech is a founding document of British neo-Keynesianism. He accepted he was taking on a “consensus”: just as in the 1930s, collective insanity is still insanity. He warned austerity would be “counterproductive”, “tipping us back into recession”.

Imagine if Clement Attlee’s government “had decided that the first priority was to reduce the debts built up in the war”, he asked us: there would be no NHS, no rebuilt railways and housing, no welfare state. If only he had stuck unrelentingly to this script.

As Nobel Prize-winning economist Paul Krugman put it, the Tories’ cynical comparison between national debt and household debt makes no sense because “our debt is mostly money we owe to each other... Your spending is my income, and my spending is your income.” I become poorer because you spend less; you become poorer because I’m spending less, and so the debt grows. The Tories’ sneers about the borrowing habits of their opponents don’t even make sense: they are borrowing, not as a temporary price to lift us out of economic disaster, but as the cost of failed policies.

Last year – before the full calamity of Tory austerity had been exposed – YouGov found 45 per cent of us believed the Government should switch to focusing on growth “even if this means the deficit stays longer or gets worse”. But Osborne’s failure must not lead to yet another bout of austerity under Labour.

Pushing growth through house-building, an industrial strategy and genuinely publicly run banks; hiking taxes on the wealthy – who, contrary to myth, studies show do not flee as a result; reducing welfare spending by no longer subsidising private landlords and badly paying bosses: here can be the basis of Labour’s alternative. Osbornomics is sunk – and, if Cameron et al are ignominiously thrown on to the scrapheap of history in 2015, it must not be resuscitated.